Chapter 60 – The Japanese Stock-market and the Japanese Mentality


1. Herd Instincts
2. ‘It’s Crazy Therefore We Like It’
3. The Honshu Paper Scandal
4. A Nation of Cowards?
5. Beyond Reason ( Rikkutsu Nuki )

As we moved into the eighties the economy continued to prosper, despite the shock of the Plaza Accords.

The heavy spending on improved transport sparked by Tanaka Kakuei’s ambitious plans to ‘improve the archipelago’ had done much to help expand domestic demand.

Domestic demand was also boosted by the continuing rise in asset prices.

But asset price rises in turn helped spawn rampant speculation, often gangster related. 

The Japanese stock market was a particularly bad example, as I was to discover through some hectic experiences.

If I elaborate a bit more than I should I hope the reader will bear with me. 

The details say much about some irrationally emotional and tribal factors underlying the Japanese mentality (though later events – the short-term rush for meme stocks on the US stock market suggest the US stock market is partly susceptible to similar irrationality).

They are also crucial to a later development – the growth and collapse of the Bubble economy

1. Herd Instincts

Like many others in those days, I used to dabble in the stock market.

My first discovery was something called the chochin-gumi.

Chochin means lantern, and it was used to describe the collective urge blindly to follow a ‘lantern’ holder – someone investing heavily in some stock on the basis of some speculative gossip, usually put out by himself or other stock-market manipulators.

On this basis the values of shares could be ramped up at will no matter how fragile the gossip might be. The mere fact that things were moving was seen as a fine reason to follow the ‘lantern.’

(This follow-the-leader complex exists in all societies. But Japan seems to suffer more than most.

(To cope with it, the courts would eventually have to rule it to be a crime deliberately to set out to promote rumours in order to generate buying by others.

(In effect, the psychological weaknesses of Japanese share buyers were already formally recognized as existing and as needing the protection of the law.

(Elsewhere we would say that if individuals were stupid enough to be deluded by such psychological gimmicks, then that was their own and not the court’s responsibility.

Dream Instincts

Another way to move markets was to create yume, or dreams.

Even the serious market reports would admit that investors were searching for ‘dreams’ as incentives to invest. Mere facts and figures, like PERs and profit statements, were too cold and impersonal.

Fantasy was preferred.

For a long time rumours of alleged AIDS cures were a favourite ‘yume.‘ 

Everyone, from chocolate firms to construction companies, were alleged not only to be researching cures but were close to breakthroughs – this at a time when even the top pharmaceutical companies in the US were still far from any breakthrough.

All this would be seriously reported in the financial press, as if it was just possible there were grains of truth.

At one stage I counted the shares of 30-40 companies bobbing up and down as the manipulators threw out yet another tidbit of phoney AIDS information.

The speculative flames would be stoked even further.

That the sane and otherwise intelligent inhabitants of the Japanese islands could believe this nonsense and act on it was to be my first but certainly not my last introduction to the strange mentality of the Japanese stock-market denizen.

An example I remember well was the fertiliser stock scam of the mid-seventies, with prices ramped up in advance of a planned UN population conference.

What does a UN population talkfest have to do with fertiliser?

A lot, naturally.

You see, it was very likely that the Latin American nations at the conference would oppose any endorsement of birth control. 

This in turn would create the prospect of a global population explosion, which in turn would see urgent calls for the world to grow more food, which in turn would increase demand for fertiliser.

And on this basis fertiliser stocks did indeed rise, for around 20 percent, for a while.

And as ever, the manipulators got out at the top. The chochin brigade were left holding the baby.

2. ‘It is Crazy Therefore we Like it’ 

Even more irrational were the so-called ‘shite kabu’ (speculative shares, with shite pronounced rather like shitty, which was quite appropriate as it usually turned out to be).

These were usually valueless shares with no redeeming feature whatsoever – not even ‘dreams’ or ‘lanterns’.

But manipulators would begin quietly to move in and start buying. As the price began to rise for no seemingly logical reason, they would buy more.

Market denizens would begin to take note.

They would be intrigued by the fact that no one was offering any reason whatsoever for the price rise.

Many were shares in companies close to bankruptcy. Or else in companies with absolutely no growth prospects whatsoever. But none of that seemed to matter. On the contrary, the worse the company, the better it was for the speculators.

Somehow simply the sight of a worthless share slowly but remorselessly moving up in price would inflame buying instincts. Price increases of several hundreds of percent were common.

Inevitably and eventually the price would have to collapse and there would have to be losers.

The organisers of the move would walk away with yet another bundle of cash, some of which would be used a year or two later to ramp up the price of the same or some other worthless share, secure in the knowledge that the chochin crowd would follow suit.

Short Selling Criminality

Assisting all this was an easily manipulated short selling system.

As the prices of the shite kabu moved up to quite absurd levels, short sellers would move in.

Short selling in any market is risky since if short sellers exceed long buyers the former can be penalised in various ways.

But in Japan in those champagne days long buyers almost always exceeded short sellers by a very large margin.

Short selling shares was seen almost as the equivalent of short selling Japan. It was unpatriotic.

Even so, the sight of a company close to bankruptcy having its shares being traded at PER values of well over one or even two hundred was bound to encourage some kind of short selling.

And at first that would seem to be a very safe thing to do. The volume of long buys would already have been greatly inflated by the manipulators-gangsters buying the shite share on credit to boost its price.

But then just at the moment when the short sells began to increase significantly, the manipulators would somehow be able easily to get funds from banks or securities companies to turn their long buys into ordinary buys.

The sudden decrease in long buys and the possibility of a short seller squeeze would further inflame speculator nostrils. The price would move even further into the stratosphere

Eventually the short sells would indeed exceed the long buys and the squeeze would get under way, with daily ‘fines’ imposed on the short sellers in the form of fees to ‘borrow’ shares to cover the gap.

The gangster-manipulators could begin to unload at handsome profits.

Helping them was a system that said that all long buy or short sell trades had to be liquidated within six months.

The short sellers would be caught. 

If they did not buy back quickly, they would be hit with the mounting ‘fines.’ If they did buy back, their massive losses would be a direct gain for the manipulators who would be able gradually to dispose of the shares they had been buying earlier to force prices up.

Innocents sucked into the short sales market would be the victims.

By any standard this was a total abuse of stock-market ethics. The stock-market authorities could easily have moved to change the six month buyback rule.

The gangster-manipulators would be caught, having to hold on to enormous volumes of shares with expensive borrowed money.

But the authorities did nothing. The squeeze was allowed to intensify, to the direct benefit of the gangster-manipulators. 

Clearly those alleged defenders of share market order and probity were in bed with the gangsters.

3. The Honshu Paper Scandal

One of the worst examples came in the late eighties.

The shares of Honshu Paper were being ramped, with Nomura Securities, the proud, dominating and all-powerful industry leader, in close collaboration with a large gangster grouping.

Eventually the scandal and the gangster connections became too large for the media to ignore.

But at precisely the moment when the media were finally moving to condemn the Honshu Paper scam, another manipulated short-selling squeeze was under way – this time with the shares of a pathetic textile company, Fukusuke.

Once again, widows and orphans were among the victims. Some wrote to me in their distress, and I wrote about it in Nikkei Business.

I did not get even a reaction, let alone action.

The Fukusuke operation was allowed to go through to its wretched six month deadline conclusion. 

The gangsters went off with their winnings. The widows and orphans presumably went to the wall.

All this went on in front of the very eyes of the media and authorities who were belatedly criticising the Honshu operation.

4. A Nation of Cowards?

When a brave English market specialist had a book published in England exposing Nomura for its gangster connections and manipulations, he was promptly sued by Nomura for large amounts in a British court.

No one in Japan, not even Nikkei, had the courage to lend even lip service support for the Englishman’s efforts to expose the corruption lying at the very heart of Japan’s financial markets.

He was saved by the eruption of the Honshu Paper scandal. Only then did Nomura feel shamed enough to withdraw its suit. 

But the Englishman received no thanks from Japan for his solitary efforts to help clean up Japan’s rotten share-market stables.

This cowardly aversion to helping conscience-driven people fighting or writing for justice was a very unattractive aspect of Japanese society.

(A rather similar situation was to emerge years later. A very brave lady journalist, Ogawa Shoko, had tried to expose the late nineties Aum Shinrikyo religious fanatics who were already in the business of assassinating opponents, and preparing sarin gas for attacks on the society.

(For her pains she was hit by the full weight of Aum legalistic revenge, and left to fight a lonely battle in the courts until the sarin gas of 1997 attacks finally awakened Japan to Aum evil. 

(Even then, few in Japan seemed to want to thank her for her vigilance, or show sympathy for her legal battles.

(The person of conscience can easily be seen as somehow having disturbed the slumbering peace and tranquility of the society – a very considerable sin.

(Whistle-blowers usually are left to suffer in quiet.

(It is a very strange way to run a society, even if it does have its muted parallels in other societies.)

5. Beyond Reason (Rikkutsu Nuki)

A strange by-product of this stock-market frenzy was the seemingly quite normal use, even in responsible media, of the term ‘rikuttsu-nuki’ – devoid of rikuttsu, or logic or reason – to explain the movements of manipulated shares.

Anywhere else in the world a term like this would be seen as a clear negative. 

Consciously to act contrary to one’s reason is to deny one’s identity as a sensible human being.

But in Japan it seemed to represent the supremacy of warm illogical emotion over logical, cold reasoning.

In other words, Japan did not need reasons ‘rikkutsu’ as a basis on which to operate its markets. It could create its own rules and procedures based on feelings and emotions

(BTW, to describe someone as ‘rikkutsu-poi’ – i.e. a person prone to rely on reasoned arguments to make his points – can be a criticism in Japan.

(True, in the West to some extent – in the Anglo-saxon West especially – we do have the concept of disliking people who are overly argumentative and rely on logic – nit-pickers. 

(But even our nit-pickers do not suffer quite the same dislike as ‘rikutsu-poi’ people in Japan.)

Political Shares

One of the more curious of the stock-market irrationalities was the so-called political stocks.

Prior to an election it was taken for granted that the prices of certain shares would rise, as part of a deliberate ramping operation designed to give such-and-such a politician the funds he needed for his election campaign.

Most stock-market addicts seemed to know about this; it would be common gossip in the financial media.

Even so, many would rush in to buy the designated share in advance of the election, only to be left high and dry as the price inevitably collapsed soon after the election.

It reminded me of those Snoopy cartoon personalities – smart Lucy and dumb Linus – with Linus always having the football snatched away at the last moment by Lucy as he responded to her call for him to kick it.

Like Lucy, no doubt the politicians and gangster-speculators would walk away laughing each time they managed to deceive the chochin brigade, yet again.

And the favoured politician would be under yet another obligation to be nice to the securities companies and gangsters who got the ball rolling for him.

It was illogical Japan at its worst.